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Shale gas debate intensifies in Germany ahead of election

Opposition from Germany's powerful environmental lobby is dimming prospects for shale gas and sparking fears that major industries in Europe's largest economy will lose out to American rivals tapping cheaper energy.

Those fears are piling pressure on German Chancellor Angela Merkel from both sides of the debate ahead of an election in September.

Opponents to hydraulic fracturing, or fracking, used to drill for shale are stepping up their arguments about the environmental risks it could pose while industry leaders urge the government to draw up rules to allow exploration.

Spurring the debate is the rapid expansion of fracking in the US energy market, where it now accounts for roughly a third of the gas sector.

Energy-intense sectors such as chemicals which are important to Germany's economy face paying three times what their American rivals pay for gas through 2030, according to influential industry lobby group BDI.

"If we immediately reject this, we will end up as international laggards," BDI chief Ulrich Grillo said this month regarding shale gas.

Industry's voice counts in Germany, where manufacturing accounts for at least 25% of the economy, with top employers that include BASF, Bayer as well as the steel and heavy engineering sectors.

There is already widespread dissatisfaction over surcharges which industry and consumers pay on electricity to fund government subsidies for renewable energy expansion.

Germany plans not only more renewable energy from wind and solar, but the phasing out of nuclear by 2022 and a swing away from polluting coal to cleaner natural gas.

Ironically, these plans could tip the balance in favour of fracking, albeit on a modest scale, say some industry and environment experts.

That is because without nuclear Germany will need an alternative source of stable, clean energy to complement intermittent renewables.

"It is becoming a very potent issue in Germany," said Miranda Schreurs, director of Berlin's Environmental Policy Research Centre and a member of the German Advisory Council on the Environment which advises Merkel's government.

"The reality is that the rising costs of the energy transition will probably mean the issue will have to be looked at seriously."

Political divisions

Germany's politicians have been busy arguing the merits and dangers of drilling. Security experts discussed the issue at the Munich Security Conference and the BND intelligence agency has analysed its geopolitical impact.

Only Merkel, famous for fence-sitting, has stayed mum.

The Greens, Europe's most successful ecological party, have grown into a political force with some chance of a return to government this year after ruling with the Social Democrats (SPD) between 1998 and 2005.

The Greens also share, or are about to share, power in six of Germany's 16 federal states, including North Rhine-Westphalia (NRW) and Lower Saxony, home to Germany's biggest shale gas reserves.

In both, the Greens are partnered with the centre-left Social Democrats (SPD), who also have reservations about shale gas.

Individual states are responsible for issuing fracking permits and NRW's environment minister, a member of the Greens, has imposed a de facto moratorium on licences due to public concerns.

Critics fear that fracking, which involves pumping vast quantities of water and chemicals at high pressure into rock formations to release trapped gas, could increase seismic risks or contaminate drinking water.

Imports

One alternative for Germany would be to import. Poland aims to develop shale gas, as does Britain, and Ukraine recently signed a €7.5 billion deal with Shell to push forward its shale plans.

"Germany is quite likely over time to import either shale gas or electricity produced from shale from other countries such as Poland or Ukraine," said Nick Butler, a visiting fellow and chair of King's Policy Institute in London.

Butler, a former UK government advisor, estimates that imports could allow shale gas to make up a little under 10% of Germany's energy market in the next decade.

"The numbers show the huge contribution it could make," said Miriam Strauch of the WEG gas association, arguing Germany should look to its own resources instead of imports.

Germany currently produces just 14% of the gas it consumes while relying on Russian imports for about 40%.

Election jam

With an absence of EU-wide guidelines, the next step for the German government is to reform the mining law covering licensing decisions. Those changes are likely to outline environmental controls required for drilling to start, say experts.

The ever-cautious Merkel, a physicist and former environment minister, is unlikely to tackle such a controversial issue before the election, meaning the new rules will likely depend on the composition of the next government.

A repeat of Merkel's centre-right coalition would offer the best chance for moving ahead with exploratory drilling.

An alliance of her conservatives with the SPD would pose more obstacles.

Yet even within Merkel's coalition there are divisions, with conservative Environment Minister Peter Altmaier at the weekend again taking a cautious line, reiterating he wanted to limit fracking.

Economy Minister Philipp Rösler, head of the pro-business Free Democrats (FDP), has meanwhile courted his core supporters by fighting the corner of German industry.

"Many German firms have opted for [relocation to] the United States, saying energy prices were the decisive factor. We are already suffering with our higher energy prices, it affects our own competitiveness," he said at a conference this month.

There is little evidence of companies shifting production to the United States yet, but many are warning that future investment is headed that way.

Background

In the US, shale gas already accounts for 16% of natural gas production and some analysts predict that could rise to 50% within 20 years.

Shale gas is an 'unconventional' fossil fuel that is found within natural fissures and fractures underground. By pumping water, sand and chemicals into rock formations under high pressure via a technique known as hydraulic fracturing or 'fracking', energy companies believe they have found a part of the answer to Europe's energy security problems.

The method remains intensely controversial because of its possible environmental risks, including poisoning groundwater and higher greenhouse gas emissions than traditional gas.

To proponents, shale gas represents a hitherto untapped and welcome alternative energy source to traditional fossil fuels. At the moment the continent depends on gas imported from Russia, and disputes between that country and Ukraine have disrupted winter supplies in recent years.